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The Link Between Oil and Poverty

Oil and Poverty
Oil has been a massive drive for inequality in the modern world, especially The Organization of the Petroleum Countries (OPEC) member states. Oil and poverty intertwine, especially in OPEC nations. OPEC, at its core, is a union of oil-producing countries that work together to make decisions on how much oil countries extract and export around the world. While OPEC strength has diminished in the world with increased oil supply coming in from Canada and The United States, OPEC nations still have stranglehold grips on their economies and governments. OPEC found its beginning in the 1960s with five countries, including Kuwait, Venezuela, the Islamic Republic of Iran, Saudi Arabia and Iraq.

Reliance on Oil Revenue

One thing that all the founding OPEC nation members have in common is a poor Freedom House Index score. Kuwait currently has the highest score with Freedom House giving it an overall score of partly free while the other four have a score determining them not free. With five distinct countries with different styles of government and cultures with one being across the globe, the one common thread is the large oil reserves that each of these countries relies on. For instance, a report by export.gov finds that “oil comprises nearly half of Kuwait’s GDP, around 95 percent of exports and approximately 90 percent of government revenue.”

The fact that government revenue comes mostly from Kuwait’s nationalized oil industry and the Kuwait Petroleum Company (KPC) shows an alarming trend. With the country relying mainly on oil revenue, the government taxes the population less, meaning that the government can ignore the requests for policy reform for less risk. If everyone in the United States decided to protest government activity, the federal government would have a serious fiscal issue on its hands, but if Kuwait’s population decided to stop paying taxes, the overall fiscal attitude of Kuwait would only change minimally.

Kuwait’s failure to support its people reflects in the numbers. According to the Central Intelligence Agency (CIA) Factbook, the total unemployment rate in Kuwait is 15.4 percent, with women being 30 percent unemployed and men being 9.4 percent unemployed. The CIA also cites that current health expenditures are only 4 percent of the economy, and there are only two beds per 1,000 people. These three simple metrics show a blatant disregard towards social issues such as women’s rights and political/economic issues such as health care and infrastructure.

Solutions

In some ways, the problem of oil and poverty and OPEC is self-repairing. As large and easy oil reserves start to dry out, the cost of obtaining more oil will increase to the point where it is no longer economically feasible to extract it. There is much debate as to when this will occur, but for many western countries, green energy has already become cheaper than traditional fossil fuels. This trend reflects in its GDP growth rate, which the CIA has concluded to be negative 3.3 percent and has been negative since 2015. With 90 percent of the countries’ GDP tied up in oil and the growth rate being negative, one can infer that as the world’s oil supplies dry up and people’s preferences shift towards green energy, Kuwait will eventually have to find another way to support itself.

Fighting the fight against OPEC and oil and poverty is easier than one might think. Since OPEC operates as a union based on exports, supporting NGOs and governmental policies towards green energy in any capacity either directly on indirectly damages OPEC. A great NGO to support is Green America which has the mission statement, “Our mission is to harness economic power—the strength of consumers, investors, businesses, and the marketplace—to create a socially just and environmentally sustainable society.” With Green America’s goals of social equity and sustainability, it is the perfect NGO to counter oppressive regimes that profit from killing the planet.

– Spencer Julian
Photo: Wikipedia

 

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How the Breakdown of the Nuclear Deal has Affected Poverty in Iran

How the Breakdown of the Nuclear Deal has Affected Poverty in Iran
As the relationship between Iran and the U.S. deteriorates, Iran’s quality of living is plummeting, the cost of living is soaring and Iranian citizens are feeling the pressure.

Since the dissolution of the Joint Comprehensive Plan of Action, more commonly known as the Iran Nuclear Deal, in May 2018, extreme hardship has hit the West Asian country. Economic sanctions that the nuclear agreement thwarted are in place again and are damaging Iran’s oil and precious metal sectors, handicapping the country’s export potential.

The primary component of the economic decline is the dent that sanctions are making in the oil sector–which, according to the World Bank, accounts for two-thirds of Iran’s economic growth.

Post-Breakdown Economic Turmoil

Iran’s oil production has already fallen steadily every month since the breakdown of the nuclear deal, according to the U.S. Energy Information Administration, and the resulting impact on the economy is devastating. In April 2019, the World Bank reported that Iran’s economic growth slowed to 1.8% in the first quarter of 2018/2019–down by 4.6% from the previous year. Compounded with years of corruption and mishandling of public funds, the breakdown of the nuclear deal has positioned the Iranian economy in a state of stagflation (negative GDP growth) estimated to continue until April 2020.

Compounding the decline in GDP, the national currency has depreciated by around 60% on the U.S. dollar. An IMF senior official revealed that the inflation rate could reach 40% by the end of 2019. This economic turmoil has reduced accessibility to living essentials, increased societal instability and swelled poverty rates.

Increased Poverty

The World Bank reports that the upper-middle-class poverty rate, which is classified as at or under $5.50 PPP (Purchasing Power Parity), is at an estimated 11.6% for 2018/2019 and forecasted to grow to 12.6% in 2019/2020.

It is essential to note that $5.50 PPP is not a daily income. That figure is usually much lower. According to the Global Basic Income Foundation, PPP is the amount a person can afford to spend on any given day, taking into account both earnings and savings. To put this into perspective, 11.6 percent of people in Iran could not afford to buy something today that costs $5.51.

Higher Prices

With the reimposed sanctions resulting from the breakdown of the nuclear deal, accessibility to living essentials is rapidly shrinking. Even humanitarian organizations struggle to acquire adequate supplies to carry out their work due to soaring prices.

A recent report from the Statistical Centre of Iran revealed eye-opening inflation statistics. Between 2018 and 2019, the price of food and drink increased by 43.5%, clothing and footwear by 33.9%, housing and utilities by 18.2% and health and medical services by 18.8 percent. The overall Consumer Price Index is up by 30.6%.

The amalgam of decreasing wages and currency devaluation is restricting Iranian citizens’ ability to acquire necessities. The World Bank expects Iran’s poverty rate to rise to 12.8% by 2021.

Humanitarian Response

With poverty levels rising in Iran, humanitarian agencies are stepping up to meet the need. Moms Against Poverty is a nonprofit organization that is working to alleviate poverty in Iran through hunger relief, education and orphan care. Since the breakdown of the nuclear deal, Iran has had a 6.3 magnitude earthquake and major flooding. Moms Against Poverty provided natural disaster victims with food, water and blankets, distributed safe heaters and helped rebuild and furnish health clinics and pre-schools in the flooded areas. The organization also funded 2,000 food baskets for the Persian New Year across three Iranian provinces.

The breakdown of the nuclear deal has been economically painful for Iran. Tensions have only risen since the reimposition of sanctions and, as of now, show no signs of alleviating. There have already been multiple conflicts between the U.S. and Iran in the Strait of Hormuz, Iran’s main shipping route, since the breakdown.

Organizations like Moms Against Poverty provide some poverty relief and help the quality of life for many citizens. However, relief on a nationwide scale could be achieved if U.S.-Iran relations are restored or if Iran can boost its economic growth and halts the devaluation of the national currency. For now, the citizens of Iran are feeling the pressure.

– Zach Brown
Photo: Flickr

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Remittances in the Arab World

Worker Remittances and Poverty in the Arab World
The Arab world has one of the highest proportions of migrant to local workers in the world, with over 32 million migrant workers in the Arab states in 2015 alone. In addition, the region has one of the largest diasporas in the world. This means that many skilled workers are emigrating to wealthier countries and sending money home via remittances. But what do remittances in the Arab World mean for the region and its inhabitants?

Brain Drain vs. Gain

In Lebanon and Jordan, unskilled labor is provided by growing numbers of refugees and foreign workers, totaling over five million in 2015. However, as more foreign workers enter the country, growing numbers of high-skilled Lebanese and Jordanian nationals are emigrating. This often occurs when opportunities are limited, when unemployment is high and economic growth slows. The phenomenon is dubbed ‘brain drain’ as opposed to ‘brain gain’, whereby an increasing stock of human capital boosts economies. A drain occurs while poor countries lose their most high-skilled workers and wealthier countries in turn gain these educated professionals.

Remittances in the Arab World

These expatriates commonly work to improve their own living situations while also helping to support their friends and families. This is where remittances come into play. As defined by the Migration Data Portal, remittances are financial or in-kind transfers made by migrants to friends and relatives in their communities of origin. Remittances often exceed official development aid.  They are also frequently more effective in alleviating poverty. In 2014 alone, the Arab states remitted more than $109 billion, largely from the United States followed by Saudi Arabia and the United Arab Emirates.

There is no denying that remittances can be a strong driving force for the socioeconomic stability of many Arab countries. But not all the influences are positive. Some experts argue that remittances can actually hurt the development of recipient countries. Their arguments cite potential negative effects of labor mobility and over-reliance on remittances. They emphasize that this can create dependency which undermines recipients’ incentive to find work. All this means an overall slowing of economic growth and a perpetuation of current socioeconomic status.

The Force of the Diaspora

The link between remittances in the Arab world and poverty is clear. Brain drain perpetuates and high amounts of remittance inflow and outflow persist if living conditions remain unchanged. Policymakers are therefore focusing efforts on enticing emigrants to return to their countries of origin. By strengthening ties with migrant networks, and implementing strategies like entrepreneurial start-up incentives and talent plans, the initial negative effects of brain drain could be curbed.

Overall, though brain drain and remittances can seem to hurt development in the short-term, if policies can draw high-skilled workers back, contributions to long-term economic development can erase these negative aspects altogether. Young populations that have emigrated to more developed countries acquire education and valuable experience that is essential to promote entrepreneurship in their home countries. Moreover, their experiences in advanced democracies can bolster their contribution to improved governance in their countries of origin. The Arab world’s greatest untapped potential is its diaspora, and it could be the key to a more prosperous future, if only it can be harnessed.

– Natalie Marie Abdou
Photo: Flickr